Story Highlights on wheat prices
- Recent market shifts have seen wheat prices decline to levels seen before the earlier rally driven by concerns in the Black Sea region, influenced by weather patterns and geopolitical developments.
- Rapid progress in the U.S. winter wheat harvest, exceeding expectations with favorable conditions, alongside varied weather forecasts in the corn belt, contribute to market uncertainties amidst heat and moisture challenges.
- Attention remains on the Black Sea region where early harvest reports indicate yield declines, impacting global exportable wheat supply dynamics from major producers like Russia, Ukraine, and France.
Wheat Prices Fall Back to Pre-Russian Rally Levels Amidst Harvest Pressure and Market Volatility
As summer arrives with the longest day of the year, the agricultural markets face significant changes and challenges. Wheat prices have returned to pre-Russian rally levels, influenced by multiple factors including weather patterns, harvest progress, and geopolitical developments.
Weather Impact on Crops
The National Oceanic and Atmospheric Administration (NOAA) predicts above-normal temperatures for much of the United States and the entire corn belt over the next two weeks. While precipitation is expected to be above average for most of the corn belt, the southwest and southern parts of the country will see near-normal rainfall. This mix of heat and moisture creates a complex environment for crops.
The two primary weather forecast models, GFS and Euro, disagree on rain chances for the eastern corn belt in the coming week. The GFS model indicates a few rain chances, while the Euro model predicts a drier outlook. Typically, the western corn belt faces more hot and dry conditions, but this season, the eastern corn belt is also under scrutiny.
Market Movements and Harvest Pressure
The markets had an awkward trading week with the mid-week Juneteenth holiday, causing closures and affecting trading patterns. The expiration of July grain options on Friday contributed to weakness in corn and wheat markets, marking a discouraging week for grains overall.
Winter wheat harvest in the U.S. is progressing rapidly, with 27 percent completed as of last Sunday, surpassing the expected 22 percent. Harvest pressure continues to dominate the market, with impressive yields in both Hard Red Winter (HRW) and Soft Red Winter (SRW) wheat classes. The Good-to-Excellent conditions for winter wheat improved by 3 percent week-on-week to 49 percent, a six-week high, and SRW conditions are the best in 24 years.
Geopolitical Factors and Black Sea Situation
Attention now turns to the Black Sea region, where harvest is just beginning. Concerns about a freeze followed by drought and extreme heat in Russia had previously driven wheat futures up by $1.60 in about 40 days. However, U.S. yields and fresh fund short selling have overshadowed these concerns. Early reports from Russia’s key wheat-growing region, Krasnodar, indicate declining yields, with figures dropping from 7 MT/ha to 6.5 MT/ha within a week.
Ukraine’s harvest is starting approximately two weeks early due to earlier hot and dry conditions, which often lead to lower yields. Russian analysts have slightly increased the country’s wheat crop forecast from the lowest 80.5 million metric ton level, but actual yield data will become more significant as the harvest progresses.
International Wheat Markets
The French wheat crop remains at 62 percent Good-to-Excellent, 21 percent below last year and the lowest since 2020. With Russia, France, and Ukraine being major wheat exporters, reduced domestic production will lead to lower exportable supply on the global market.
The U.S. dollar breaking above the previous week’s highs poses a challenge for U.S. export competitiveness, although lower futures prices offer some relief. Global inflation data continues to slow, hinting at a potential Federal Reserve rate cut in September. Last week’s FOMC decision kept the federal funds rate steady at 5.25-5.50 percent, while other countries have made cuts.
U.S. Crop Conditions and Market Outlook
U.S. corn conditions declined slightly to 72 percent Good-to-Excellent, one percent below expectations but still the best in six years. Soybean conditions also fell, but remain the best in four years. Weather conditions in July will be crucial for these crops.
International weather concerns, particularly in China, where 35 percent of the corn area is experiencing hot and dry conditions, may add support to the corn market.
The USDA will release the grain stocks and planted acreage report on June 28th, potentially adding risk premium back to the grain markets. December corn futures hit their lowest point since late February, closing at $4.53 ¼ on Friday. Recent chart patterns suggest a head-and-shoulders formation, indicating possible further decline to the $4.50 level.
Wheat Market Specifics
July KC wheat hit $5.80 on Friday, a key support level. The wheat market has been making lower lows, and this trend needs to halt before confirming a market low. Chicago wheat could see a low of $5.50, with a potential gap fill at $6.11.
Cattle Market and Equity Performance
The USDA’s monthly Cattle-on-Feed report showed higher-than-expected placements, contributing to bearish market sentiment. Despite last week’s rally, cattle futures gave back gains, with fed cattle cash trade picking up on Friday.
The agricultural markets are navigating a complex landscape of weather patterns, geopolitical developments, and market dynamics. With wheat prices returning to pre-Russian rally levels, the focus shifts to harvest outcomes and international supply concerns. The coming weeks will be crucial as traders and farmers alike monitor weather conditions, harvest progress, and geopolitical events that could further influence market trends.
